The Vanguard MSCI Europe ETF (VGK) tracks the MSCI Europe Index and is one of the most cost effective ways to gain exposure to the leading companies based in Europe. Overall, developed European markets can offer a comparable risk and return profile to U.S. stocks, while still helping investors to geographically diversify their portfolio's equity component. More contrarian-minded investors may also want to look to Europe for its recovery potential following sovereign debt worries and slowing economic growth in the region .

In A Nutshell

VGK is made up of common stocks of approximately 462 companies located in 16 European countries. The countries with the largest capitalization weightings in the index are the United Kingdom, France, Germany and Switzerland. The others countries represented are Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain and Sweden .

The ETF was launched on March 4, 2005 by Vanguard. VGK follows a passively managed, full-replication approach that is intended to closely match the underlying index. This ETF recently had $3.7 billion in total assets under management.

What Makes VGK Unique

VGK offers a slightly higher market capitalization exposure compared to its peer group average. Overall, VGK is comprised of over 400 securities, which compares favorably to the popular S&P 500, and index of 500 companies. As expected, the fund's market cap-weighted methodology gives it a tilt towards well-known multinational companies .

How It Fits

VGK's appeal is fairly straightforward as the fund boasts a low cost and features exposure to a balanced portfolio based off the MSCI Europe Index. As such, VGK can serve as both a core or complimentary holding in long-term, buy-and-hold portfolios depending on individual objectives and risk preferences.

What It'll Cost You

According to the Vanguard prospectus, VGK has an expense ratio of 0.14%; bycomparison, the Europe Equities ETFdb Category range is 0.14% 0.8% and the average is 0.55%. From a cost perspective, VGK certainly falls towards the cheap end along the expense spectrum. Furthermore, this ETF is available for commission free trading to TD Ameritrade and Vanguard account holders.

Under The Hood

VGK is well-balanced from a sector breakdown perspective with financial services accounting for the biggest chunk of assets. The top five sectors represented in VGK include Financial Services, Consumer Defensive, Healthcare, Energy, and Industrials. The top five stocks held include Nestle SA, HSBC Holdings, Vodafone Group, Novartis AG and BP .

By country, U.K.-based stocks account for one-third of total assets; France, Switzerland and Germany account for the next biggest chunks from a country-breakdown perspective.In terms of market capitalization, large-cap stocks make up the vast majority of holdings at over three-quarters of total assets. Mid-cap stocks also receive meaningful exposure while small and micro-cap companies account for by far the smallest chunk of the portfolio.

Overall, VGK represents exposure to a well-rounded portfolio that offers a higher degree of mid and smaller cap exposure compared to competing ETFs and funds in the space.

Yield, Volatility and Performance

This ETF offers an annual dividend distribution and itsexpected volatility should fall in line with broad U.S. markets but below emerging market benchmarks. From a performanceperspective, VGK fell alongside major equity indexes during the 2008 slump, shedding 44% that year. As expected, this ETF recovered alongside major equity benchmarks in the following years; VGK managed to clinch gains of roughly 31% in 2009 and 6% in 2010. This ETF turned in a negative performance in 2011, dropping 11% during a very choppy year for stock markets .

Other Options

The ETFs profiled below offergenerallysimilar exposure as VGK, although there are a number of distinguishingcharacteristicsto each one:

  • iShares MSCI Germany Index Fund (EWG):This is the biggest fund in the Europe Equities space that offers country-specific exposure to the regions' economic powerhouse.
  • iShares MSCI EMU Index Fund (EZU): This ETF offers exposure to members of the European Union who have adopted the euro as their currency.
  • WisdomTree Europe SmallCap Dividend Fund (DFE): This fundtargetssmall-cap, dividend paying securities in this region.
  • Global X FTSE Nordic Region ETF (GXF): This ETF focuses on the financially-sound Nordic region of Europe, which includes Sweden, Denmark, Norway, and Finland.

Disclosure: Long shares HSBC

Related Articles
  1. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  2. Mutual Funds & ETFs

    The 3 Biggest Mutual Fund Companies in the US

    Compare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
  3. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  4. Professionals

    5 Top-Rated Funds for Your Retirement Portfolio

    Mutual funds are a good choice for emotional investors. Here are five popular funds to consider.
  5. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  6. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  7. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  8. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  9. Stock Analysis

    The 6 Biggest Russian Energy Companies

    Learn about the top energy companies in Russia, a country that holds some of the largest reserves of oil, natural gas and coal in the world.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!